A New Deal’s challengesOn Monday, President Moon Jae-in’s administration announced the direction of its economic policies for the second half of his term. In a nutshell, it plans to tackle challenges from the Covid-19 pandemic with what it calls a “uniquely Korean-style New Deal” primarily based on “digital” and “green” initiatives. The liberal administration wants to pour in a whopping 31 trillion won ($25.2 billion) by 2022 to help create 550,000 jobs across the board. The government intends to use gargantuan fiscal stimuli in the public sector as priming water for further investments and additional job creation by the private sector.
To achieve even the 0.1 percent growth the Moon administration set forth for 2020, a massive fiscal input is unavoidable, as seen in most developed economies, including the United States, Europe and Japan. The main issue of the new National Assembly, which opened on Monday, was also the government’s third supplementary budget bill amounting to 23.9 trillion won, more than the combined figure of its first and second supplementary budgets. The government and the ruling Democratic Party take the position that spending is necessary — period.
But the problem is fiscal health. Despite a plethora of projects to spend money on, the supplementary budget bill does not specify how to fund the spending. A considerable portion of the third budget bill has to be covered by debt. The government has drafted three supplementary budget bills in a year for the first time since 1972. But it must not brush off international credit rating agencies’ warnings that if the ratio of our national debt against GDP exceeds 40 percent, they may readjust Korea’s credit rating.
The Moon administration hopes that a fiscal expansion and New Deal-type initiative would help the economy rebound, eventually solidifying our fiscal integrity. Whatever the case, the government must spend the money where it is needed most and slash unnecessary spending as much as possible.
Despite a polishing of the title of the third supplementary budget bill, however, the government’s policy direction reminds us of what it promoted before — remote education, working and medical services as well as fostering AI talents and diffusion of eco-friendly energy. But we hardly see fiscal inputs for innovative policies on such critical issues as telemedicine and car-sharing. If the government wants to see its fiscal stimuli boost the country’s future competitiveness, it must drastically change its thinking. At times like this, a fundamental restructuring of labor relations is needed. If the government hesitates to tackle that challenge, it can hardly succeed in a Korean New Deal.